Buying a home is one of the biggest financial decisions that you make in a lifetime. It can be both rewarding and challenging to be a homeowner. It can really help you to get off on the right foot if you take these seven steps prior to buying a home.
1. Know How Much You Can Afford
You have to consider the total cost of owning a home before deciding how much of a purchase price you can afford. It’s the mortgage payment (including principal and interest), real estate taxes, homeowners association fees (if applicable), and some money set aside for anything that could (and probably will) go wrong on a monthly basis.
A real estate agent or mortgage loan officer can help you determine how much of a home you can afford. Do keep in mind, however, that mortgage lenders do not take ALL of your expenses into consideration when telling you how much of a mortgage (and how much of a home) you can qualify for.
So even if they tell you that you can qualify for a million dollar mortgage, it doesn’t mean you can actually afford to make that monthly payment. Mortgage companies consider your gross income and do not include expenses such as insurance, your monthly grocery bill, and gas as part of your expenses.
You, however, have to include these expenses to realistically decide if that million dollar mortgage payment is feasible.
2. Pull Your Credit Report
Pull your credit report from each of three credit bureaus. Your credit needs to be in tip-top shape when it comes time to apply for a mortgage. Great credit or bad credit can make a huge difference in the terms and conditions you land for a mortgage.
It can affect the interest rate you pay, the amount of money you have to come up with for a down payment, and even the length of time you have to repay the mortgage loan.